What is the difference between gross income and net operating income?

The distinction between gross income and net operating income is crucial in real estate and income property evaluation. Gross income refers to the total revenue generated by a property before any expenses are deducted. This includes all income sources, not just rental income; hence, it may encompass any additional fees, such as parking fees, service fees, or other ancillary incomes that contribute to the overall income of the property.

Net operating income (NOI), on the other hand, is calculated by taking the gross income and subtracting all operating expenses associated with managing and maintaining the property. These expenses typically include property management fees, maintenance costs, property taxes, insurance, and utilities. NOI therefore provides a clearer picture of the profitability of a property by showing the income that remains after the direct costs of managing it are accounted for.

This understanding is essential for appraisers because it helps them assess the cash flow generated by an investment property, aiding potential buyers in determining its value and operational efficiency. By grasping the difference between these two terms, appraisers can provide more accurate evaluations and analyses of real estate investments.